Viewpoint: The key to the success of Web3 is to abstract away complexity so that most people are unaware of its existence

Author: Rex Woodbury, Index Ventures

Compiled by: Guo Qianwen, Chain Catcher

As early as the 1990s, crypto expert Nick Szabo coined the term "smart contract." In a paper published in 1997, he wrote that smart contracts "combine protocols with user interfaces, making relationships in computer networks more formal and secure." In short, smart contracts are self-executing, with the terms of the agreement between buyers and sellers directly embedded in the lines of code.

Szabo explained smart contracts using the example of a simple vending machine.

In a vending machine, the rules of the transaction are written into the machine. You press a number, select the product you want to purchase, and then insert money. If the money inserted is sufficient, the machine will dispense the product. The pre-written rules execute the transaction.

The principle of smart contracts is similar, and they are crucial for Web3. By writing the rules directly into the code, smart contracts can transact without intermediaries. A vending machine allows you to buy snacks without a vendor; smart contracts enable you to accomplish anything without bankers, accountants, lawyers, or other intermediaries.

Web3 was a buzzword in 2021, and by 2022, it has become more mainstream, perhaps a contender for the "Word of the Year" in the Oxford Dictionary?

In media coverage, "Web3" is rapidly replacing "crypto" as the term used to describe a decentralized, user-owned secure network. In my view, this is a good thing: Web3 signifies progress and innovation, while crypto is associated with complexity, speculation, and a host of negative connotations that have unfortunately solidified over the past decade, potentially steering this movement off course. Web3 may be a necessary rebranding.

But the problem with Web3 is that most people will never know it exists.

The reason is that Web2 is a front-end transformation, while Web3 is a back-end revolution. In other words, Web2 reshapes the interface through which people interact, while Web3 rebuilds the mechanisms behind the screen. This does not mean that Web3 will not become an equally important movement—it will fundamentally change industries and reshape outdated power structures. Individuals, companies, and organizations that succeed in Web3 must be able to distill its complexities.

For example, people do not need to understand how cryptocurrency mining works, nor do they need to know about mining equipment. In fact, it may be better to hide these things in the background.

Ordinary people do not understand blockchain, fungibility, or stablecoins. They do not need to understand them. Most people today do not understand HTTP, a hypertext transfer protocol developed in 1989 that drives the operation of the World Wide Web, but they rely on it every day.

This is why the vending machine is a great metaphor. Most people do not understand how a vending machine works, yet the average person spends $62 a year on vending machines. People do not need to understand the inner workings—unless they are vending machine repair technicians. (In our digital world analogy, they might be smart contract engineers.) But people's understanding is sufficient: you put in money, and a can of soda comes out. That's enough.

Today, Web3 has not yet "crossed the chasm"—we are still in the "early adopters" phase of the technology adoption cycle. Although OpenSea reached $14 billion in transaction volume in 2021, it only had about 250,000 active buyers and sellers; 70% of the transaction volume came from about 20,000 users. In contrast, eBay has 183 million buyers.

To become mainstream, Web3 needs to be easily accessible to ordinary people. One way to achieve this is to distill complex concepts using easily understandable metaphors. I will give two examples I often use, both from Sherman W. Woschger's excellent work, "Tokenomics."

Metaphor 1: A Web3 wallet is like a real wallet.

Your Web3 wallet is your gateway to the Web3 world. In its simplest form, your wallet is software that allows you to securely send and receive cryptocurrency without relying on a third party. You can use MetaMask on Ethereum, Phantom on Solana, or Terra Station on Terra. To enter the Web3 world, people need a wallet.

Fortunately, "wallet" is a familiar concept—Web3 wallets operate in a familiar way. Just as a physical wallet contains your driver's license, gym membership card, Costco membership card, and other forms of identification, your digital wallet also contains your digital identity. Just like you open your physical wallet to show your ID when you swipe your card at a bar, you open your digital wallet online to display your digital credentials. For example, when I buy something on OpenSea, I present my MetaMask wallet.

A wallet contains two types of keys: a public key and a private key. The public key is like an account number that you can share freely with anyone. However, the private key is (surprise!) private—you can think of it as a password that only you know. But Woschger used a metaphor I prefer—this brings us to our second metaphor:

Metaphor 2: A public key is like a padlock.

Imagine I want to send you a message, but I don’t want anyone to intercept it. I ask you to send me a (unlocked) padlock, and you keep the key. I put my letter in a box, lock it with your padlock, and then send it back to you. Only you, with your padlock key, can open it to receive the message. The padlock is the public key; your padlock key is the private key.

People can intuitively understand these concepts because they are not new. But what is lacking today are solutions for Web3. For example, MetaMask was initially designed for developers. Although it has over 20 million users, it is far from intuitive. Products that succeed in Web3 must eliminate all complexity. To enable billions of people to use Web3, products need to be extremely simple yet elegant.

In addition to specific metaphors, there are some broad concepts familiar to the public that will help demystify Web3.

Take decentralization, for example. "Decentralization" is a daunting term. People embrace centralization and recognize the existence of responsible parties; if not articulated properly, decentralization can convey a sense of chaos. But conversely, decentralization should convey a sense of autonomy—more power and wealth flowing to the people rather than gatekeepers. I often think of a quote from Vitalik:

Most technologies tend to automate workers who are marginalized and performing repetitive tasks, while blockchain automates the center. Blockchain won't put taxi drivers out of work; it will put Uber out of business because taxi drivers can work directly with customers.

The idea of "removing intermediaries" resonates with people. "Power to the people" resonates with people—this is also one of the reasons for the success of ConstitutionDAO (about half of the donors to ConstitutionDAO's $47 million raised created a Web3 wallet for the first time to make their donations). But these concepts are still imperfect. People may ask, what if I want to complain? I can no longer talk to an Uber customer service representative. These are issues that need to be addressed, and my point is that complete decentralization will be the exception. Instead, the world will retain a degree of centralization while becoming more decentralized; similarly, most people want someone to be accountable and are willing to pay a small fee for convenience and reliable service.

Another widely understood concept is scarcity. People may not understand the meaning of non-fungibility, but they understand the scarcity or uniqueness of things. Any gamer understands scarcity in the digital world. Last year, gamers spent $54 billion on digital items in gaming economies, and this spending is expected to grow to $74 billion by 2025. In fact, players of Fortnite interact with both fungible tokens (the in-game currency V-Bucks) and non-fungible tokens (skins for their characters).

Easily understandable concepts can also extend to other areas of Web3. For example, people understand the concept of return on investment, which may help some view tokens from this perspective. People also understand the concept of access, where tokens serve as tickets that allow people to access gated content or events, driving further mainstream adoption.

DAOs, in and of themselves, can be understood better when viewed as communities or democratic entities. DAOs implement a system similar to democracy. The "voter turnout" in most DAOs is very low (just like in the real world), and it resembles a representative democracy even more. People trust others—designated authorities who are seen as more "visionary"—to make decisions. Most people are unwilling to read lengthy proposals to make decisions; it is human nature. The DeFi protocol Yearn's community recently proposed a decentralized governance system that allows YFI holders to elect a committee to manage budgets and plan developments.

When people stop using obscure terms ("Ethereum," "blockchain," "fungibility") and no longer view Web3 as a mysterious black box but rather as a set of easily understandable concepts ("scarcity," "access," "community"), they will be more open to this new model. Products need to lean towards simplicity.

Back in the 1990s, the web was similarly elusive. Ordinary people had no idea how to access it. Then AOL came along. AOL's slogan was "Easy to use, easy to win." AOL removed complexity with a user-friendly interface.

Jarrod Dicker and Jonathan Glick recently wrote:

Ted Leonsis has led many such movements; his company was acquired by Steve Case in 1994, and he once said, "Most of my time is spent simplifying things." One of the most apt and famous examples is rewarding users with audio for returning to the service time and again. It announced the reward with three simple words: "You've got mail!"

A natural question is: What will be Web3's AOL?

The opportunity is enormous. AOL's market value at its peak could reach $350 billion in today's dollars. (Unfortunately, it ultimately sold for about 1% of that.) What will be AOL in the crypto industry? It could be a killer product that makes billions of users choose Web3, and this process should be intuitive and easy.

Ultimately, Web3 needs two things: 1) user-friendly products 2) killer use cases. Winning companies will possess both.

Last year saw significant progress. For example, NBA Top Shot brought NFTs into the mainstream. I can't provide a source, but I remember reading that about half of the people who purchased Top Shot NFTs did not even know they owned an NFT—they just wanted to "own" that collectible sports moment in digital form.

What happens when owning a Top Shot NFT represents more than just a collectible? What happens when owning a "moment" of Stephen Curry grants you a signed jersey? Or when owning a "moment" of LeBron James gets you tickets to a Lakers game? These will be breakthrough moments for Web3.

If the term "NFT" gradually fades from our view over time, replaced by the more easily understood "digital asset," I wouldn't be surprised. (That said, the term NFT may have already become deeply entrenched.) Or eventually—long after—we might just say "shirt" or "house," letting the context reveal whether we are talking about a physical or digital item.

From the perspective of "user-friendly products," better wallets are a good starting point. Intuitive wallets with multi-chain functionality will significantly drive the movement forward. From the perspective of "killer use cases," music and gaming are promising options. Both are expected to see significant turning points in 2022.

2021 was an important year for Web3, with significant progress made in various aspects. However, most people still do not know what blockchain is. Importantly, that is enough—they do not need to know, and they may never know. The vast majority of people will never know they are interacting with a blockchain because its complexities are hidden beneath beautiful and familiar interfaces. As we move into 2022, this is the opportunity we must strive for.